Should I get a secured credit card to improve my credit score?

Question: My roommate told me I should get a secured credit card so I can build my credit score up. Is that a smart move?

Donna M. in Buckeye, AZ

Answer: A secured credit card can be a great credit-building product, but it can also be a drain on your wallet.


Hello Donna,

Many, though not all, financial institutions offer secured credit cards.

Typically, the process involves opening up and depositing a significant amount of cash (usually $300 to $1,000 or so) into a secured savings account at the financial institution. They then issue a credit card (looks and is accepted as payment like any major unsecured credit card) with a limit equal to or close to the amount you have deposited into the secured account. By secured, though, you need to understand that you cannot touch the money in the savings account as long as the credit card is open and active. If you miss a payment or incur a penalty fee, it will likely come from your secured savings account, and the card might be deactivated until you pay the fees and return the secured account to the original balance.

Secured cards, as I mentioned, act just like any other Visa or MasterCard credit card and can help to build a history of on-time credit card payments. I have two major concerns, though, with secured cards.

First, they almost always carry fees of some sort. Whether we’re talking about a high annual fee, monthly fees, a credit union membership share deposit, or, in some cases I’ve seen “per transaction” fees, be aware that these “products” are typically much more expensive than standard credit cards. This is why I typically do not suggest to my classes that people use them UNLESS they’re dead-set on buying a home within the next couple of years and really need to build or rebuild their credit rating.

Second, though, is the real kicker. I’ve talked to a number of students in my classes who tell me that after using a secured card for a year or more, paying the additional fees, and ensuring their payments were made on time, they applied for a regular credit card only to find out that their secured card usage was not even being reported to the credit bureaus. Consequently, they never received credit for their history of on-time payments.

I suggest, then, that if you’re certain that you want to go with a secured credit card, make sure to get in writing that the financial institution will actually report your payments and credit activity to at least one, though ideally all three, of the major consumer reporting agencies.

Best of luck, and feel free to review this how-to guide we put together on building credit.


Todd Christensen

Education Manager and Facilitator of the Money Fit Academy

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